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Chinese Deal Boosts Kazak Oil Industry

The construction of a pipeline to transport Kazak oil to China has clear economic benefits - but many warn that the project is full of potential hazards that cannot be ignored.

On May 17 in Beijing, Kazak president Nursultan Nazarbaev and his Chinese counterpart Hu Jintao signed an agreement on the construction of 1,000 kilometre long section of the route that will bring both sides closer to completion of the 3,000km oil pipeline.

The billion-dollar pipeline, with an annual capacity of 10 million tons of oil, is part of a project to bring energy resources from Kazakstan’s western oilfields into China.

It will run from the rail oil terminal facility at the Atasu station in the central Karaganda region to the Druzhba-Alashankou station on the Kazak-Chinese border. The first section - Atyrau-Kenkiyak - running 448km from the western oil region to the east began operating in March. The funding for the project, which was agreed upon in 1997, will be borrowed from the Chinese government.

Some observers believe the project will bring great economic and political advantages.

Kanat Bazarbaev, deputy director of the Centre for Analysis of Public Issues, told IWPR that implementation of the project would give Kazakstan a real chance to diversify its export routes. Currently Astana is dependent on Moscow, as most of its oil is transported to western markets via a network dating from Soviet times, which goes via Russia.

“We will be independent in making decisions about export of our oil,” he said, adding that the pipeline would also solve the issue of supplying the Pavlodar oil refinery in the north-eastern part of the country, which the existing pipeline network does not reach.

Gani Kasymov, leader of the Patriot’s Party of Kazakstan, agreed. He noted that Kazakstan has long been seeking alternative ways to access world markets since so many of the existing options are problematic. “In Afghanistan there are military operations, Iran is subject to a United States embargo, and the Baku-Tbilisi-Ceyhan pipeline is a purely American project,” he explained, adding that the latter is not completely viable for reasons of expense and security.

Kasymov hopes that profits from the Chinese oil deal will trickle down to the population. He believs that in the wake of a corruption scandal involving contracts with western oil firms in the early Nineties, the Kazak authorities will try to demonstrate that their practices are transparent.

He went on to say that Kazakstan should not limit its ambitions to China, but also transport oil to South Korea and Japan and take advantage of what he called “a good historic chance".

Azat Peruashev, leader of the pro-presidential Civic Party of Kazakstan, pointed out that China, with annual economic growth exceeding nine per cent, is an ideal long-term customer for Kazakstan’s energy resources.

“China’s need for oil will increase annually, therefore construction of a pipeline meets the interests of Kazakstan,” he said, adding that the development would increase competition among existing and potential customers for Kazak oil.

But others have expressed doubts over the deal, voicing concern over many conditions imposed by Beijing – for instance its insistence that Chinese workers be employed in the construction of the project.

They point to the experiences of local people during the construction of the first section of the pipeline by the Chinese National Petroleum Company, which owns 60 per cent of the joint stock company CNPC-Aktobemunaigaz. According to Jasaral Kuanysh-ali, former head of information with the Aktobe regional administration in western Kazakstan, Chinese contractors were paid up to three times more than the Kazak workers, which caused great resentment.

And Venera Galyamova of the Kazak Institute of Strategic Research warned that enthusiasm over the project should not lead to Astana becoming dependent on Beijing.

She fears that China could attempt to monopolise Kazak energy resources as a way of increasing its energy security. “At present, oil comes to China from the Middle East, where conflicts are constant and the role of the United States is strengthening,” she said, adding that as a result of this uncertainty, Beijing may concentrate on Central Asia and its plentiful natural resources.

Aside from political considerations, the potential impact on the environment is also giving rise to concerns. Ecological activist Kanat Berentaev said, “The pipeline will have a large diameter – more than a metre - which means that a large area will be used up by its construction. And the project will hinder the migration of saiga antelopes and other wild animals.”

And leader of the green party Tabigat, Mels Eleusizov, worried that the pressure levels needed to pump oil over such great distances could lead to accidents involving oil spills. “Before launching this pipeline, an assessment of its environmental effects should be conducted,” he said.

He also warned that the pipeline could attract separatist militants in China’s north-western Xinjiang region, who might see attacking it as a way to further their course. “This pipeline will be a convenient target for the Uighurs to attract attention once again,” he said.

Construction of the Kazak pipeline as far as the Chinese border is expected to be completed by the end of 2005.

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